Petition for Writ of Certiorari — Baker v. Minerex Erdoel, Inc., 109 S. Ct. 57 (1988) (No. 87-1789)

87-1789 |,

AFR 28 1988

No.

Supreme Court

of the Wnited States

October Term, 1987

BAKER, SMITH & MILLS, P.C.

f/k/a BAKER, MILLER, MILLs & Murray, P.LC.,

Petitioner,

v.

MINEREX ERDOEL, INC., KARL-HEINZ KRUGER

and Otro HACKOBER,

Respondents.

ON PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE FIFTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

JERRY R. SELINGER

Counsel of Record

Davip E. HowrE

ALYSON C. DOVER

BAKER, MILs & G.uast, P.C.

500 Trammell Crow Center

2001 Ross Avenue

Dallas, Texas 75201-2916

(214) 220-8200

Attorneys for Petitioner

SOUTHWESTERN LAW PRESS — DALLAS, TEXAS 75208 — (214) 748-6022

QUESTION PRESENTED

Did the Court of Appeals for the Fifth Circuit err in

holding that the United States District Courts are pre-

cluded by Section 104(a) of the Bankruptcy Amendments

and Federal Judgeship Act of 1984 (BAFJA),* codified in

28 U.S.C. § 158, from referring appeals from the deci-

sions of the United States Bankruptcy Courts to United

States Magistrates with the consent of all parties, where:

(1) the very Act purportedly precluding such referrals

(the BAFJA) deleted the only statutory provision in

existence which expressly prohibited such referrals;

and (2) a related statute (28 U.S.C. § 636(c\1)) authorizes

such referrals “notwithstanding any other provision of

law to the contrary.”?

* PL. 98-353, 98th Cong., 2d Sess. (1984), reprinted in 1984 US.

CODE CONG. AND AD. NEWS (98 Stat.) 333 et seq.

ill

PARTIES TO THE PROCEEDING

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Minerex Erdoel, Inc.

Karl-Heinz Krueger

Otto Hackober

Baker, Smith & Mills, P.C. f/k/a

Baker, Miller, Mills & Murray, P.C.

Sina, Inc.

Sina 77-78, Ltd.

Sina 78-79, Ltd.

Sina 79-80, Ltd.

Sina 80-81, Ltd.

Vv

TABLE OF CONTENTS

Page

I FI 6 ee ks hs ad nce eee i

Fea Os Gai FI gna oss wc see eeacaeuus ili

eee ee PE kh koe oe hee eae ee vi

SE IE 3.23 cv a nlcdevcavaevecoiascieaee 1

SUMUIMOCTION ool nt 2

lye vgtpy Big ot) Fy + SR rn rare 2

STATEMENT OF THE CASE..................... 3

REASONS FOR GRANTING THE PETITION .... 5

I. Special and Important Reasons for Review

on Writ of Certiorari Exist................. 5

II. Novel Issues Concerning the Interplay

of Two Federal Statutes Exist Which

Should be Decided by the Supreme Court... 7

Ce 5k Scere cae ee ee ee eee ee 12

Appendix

Minerex Erdoel, Inc. v. Sina, Inc., 838

ae Fk Geek Gs RED reser evo delle aieeees A-1

hE BUC ee ree rd eer aire: mE A-12

Memorandum Opinion and Order................ A-13

CN ak Fos oe ab erns ieee eee A-24

TP SEs NE os ens ke nee sacc ss thee A-26

eS Se rey err. 5 bwin Saeed A-29

DD Ue Se Ce oo coke pw eee eee A-30

5B UA. Bie nice bck Fons se eee A-31

vi

TABLE OF AUTHORITIES

Cases Page

Donaldson v. United States, 400 U.S. 517,

EGE vi cvne bo0k cos 0ake eee 5

Kossick v. United Fruit Co., 365 U.S. 731,

i Yt: Sea a rrr rere err eye eee 6

Mathews v. Weber, 423 U.S. 261, 266-70

Bree ee ee rere 6,9

Matter of Elcona Homes Corp., 810 F.2d 136,

+ fe, Tt >. : | DRI SAA ie See errs 5, 8

Minerex Erdoel, Inc. v. Sina, Inc., 838 F.2d 781

Ce See Se sce w ikea eck Owancansbeureocureesses 1-2,5

Northern Pipeline Construction Co. v. Marathon

Pipeline Co., 458 U.S. 50 (1982) .................. 8

Pacemaker Diagnostic Clinic of America, Inc.

v. Instromedix, Inc., 725 F.2d 537, 546

Be S| | eS er Sate 6-7

Ruckelshaus v. Monsanto Co., 467 U.S. 986,

SN Ce icc. ch awe neces ee ee ake 10

Russello v. United States, 464 U.S. 16, 23-24

CUE. a 6.0cka encase bens Laemeseenae eae es 10

United States v. An Article of Drug . . . Bacto-

Unidisk . . ., 394 U.S. 784, 791 (1969)............... 6

United States v. Brown, 333 U.S. 18, 25-26

CUE cs vo vXdsawked ea enan cuisine 10

United States v. Mendoza, 565 F.2d 1285, 1289

Cs Se SN vcd o'cka cane cco nee ass 11

United States v. Muniz, 374 U.S. 150, 152 (1963).... 7

United States v. Standard Oil Co., 384 U.S. 224,

SE CHE kn ccvuseccccauaascsSvassexdaneseniee 10

Vii

TABLE OF AUTHORITIES (Continued)

Cases Page

United States v. Turkette, 452 U.S. 576,

I ag Se he ere ar ee eat roe 11

Watt v. Alaska, 451 U.S. 259, 266-67 (1981) ......... 11

Statutes and Rules

Re PE, , ok o's ceancapewcetovsnnera 2

Se Ns oie ba cid deca sane sckausdavnatans 2

EE Ss sp iused da wieeseeeebvscueeude 2-3, 9, 11

I iila'g we xno kien kdendduecdaweens 2-5, 8, 11

Re em rere 3, 8, 11

ee Pe EE 6 5.606 00sdaccdcscnnkecccevess 2-3

NG EE GN e uN cawahacecsesssnestesbeece 5

a ice aun newaeas 3

Local Rule 1.3 of the United States District

Court of the Northern District of Texas,

os ay ~

Order for Adoption of Rules for the Exercise of

Powers and Performance of Duties by United

States Magistrates for the Northern Disirict

of Texas (Misc. Rule No. 6) (N.D. Tex.

Bee I Ws I ok cdo ces ccctencecndwcccve. 8

Special Order Relating to Bankruptcy Cases

(Misc. Rule No. 33)}4N.D. Tex. Aug. 3, 1984) ...... 2

No.

Supreme Court

of the United States

October Term, 1987

BAKER, SMITH & MILLS, P.C.

{/k/a BAKER, MILLER, MILLS & Murray, P.C.,

Petitioner,

v.

MINEREX ERDOEL, INC., KARL-HEINZ KRUGER

and Otro HACKOBER,

Respondents.

ON PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE FIFTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

OPINIONS BELOW

This petition seeks review of a decision of the

United States Court of Appeals for the Fifth Circuit (the

“Fifth Circuit” or “Court of Appeals”) which is reported

as Minerex Erdoel, Inc. v. Sina, Inc., 838 F.2d 781

Ss

(5th Cir. 1988). That decision vacated and remanded an

unreported decision by the United States Magistrate for

the Northern District of Texas, Dallas Division (the

Magistrate”), which was rendered pursuant to an Order

of the United States District Court from the same district

(the “District Court’’), referring (with the consent of the

parties) an appeal from a decision of the United States

Bankruptcy Court for the Northern District of Texas,

Dallas Division (the ‘‘Bankruptcy Court’’) to that

Magistrate.

JURISDICTION

The decision of the Court of Appeals was entered on

March 3, 1988. That decision reversed and remanded a

decision of the District Court affirming in part a decision

of the Bankruptcy Court with regard to Petitioner’s lit-

igation representation of four limited partnerships and

their common general partner, each of whom had

requested reorganization protection pursuant to Chapter

11 of the United States Bankruptcy Code, 11 U.S.C. §101

et seq. Jurisdiction of the Bankruptcy Court lay under

28 U.S.C. §157 and the Special Order Relating to Bank-

ruptcy Cases (Misc. Rule 33) (N.D. Tex. Aug. 3, 1984).

Jurisdiction in the District Court lay under 28 U.S.C.

§§158, 636 and 1334. Jurisdiction in the Court of Appeals

lay under 28 U.S.C. §1294. This Court has jurisdiction to

review the judgment of the Court of Appeals under 28

U.S.C. §1254(1).

STATUTES INVOLVED

28 U.S.C. §636

The pertinent text of this lengthy provision is set forth

at page A-26 of the Appendix, pursuant to Sup. Ct. R.

21.1(f).

28 U.S.C. §158

The pertinent text of this lengthy provision is set forth

at page A-29 of the Appendix, pursuant to Sup. Ct. R.

21.1(f).

28 U.S.C. §1334 (1978)

The pertinent text of this lengthy provision is set forth

at page A-30 of the Appendix, pursuant to Sup. Ct. R.

21.1(f).

28 U.S.C. §1334 (1984)

The pertinent text of this lengthy provision is set forth

at page A-31 of the Appendix, pursuant to Sup. Ct. R.

21.1(f).

STATEMENT OF THE CASE

‘ Introduction and Proceedings in the

Bankruptcy Court.

This Petition raises the question of whether the United

States District Courts are prohibited by the Bankruptcy

Reform Act of 1978 (“BRA”’),'! as modified by the Bank-

ruptcy Amendments and Federal Judgeship Act of 1984

(“BAFJA’’)?, from referring appeals (with the consent of

all parties) from the United States Bankruptcy Courts to

United States Magistrates under the Magistrates’ Act.

This Petition concerns an appeal from an order of the

United States Bankruptcy Court for the Northern Dis-

' P.L. 95-958, 95th Cong. 2d. Sess. (1978), reprinted in 1978 USS.

Code Cong. and Ad. News (92 Stat.) 2548 et seq.

- P.L. 98-353, 98th Cong., lst Sess. (1984), reprinted in 1984 U.S.

Code Cong. and Ad. News (98 Stat.) 333, et seq.

trict of Texas, Dallas Division granting in part a Final

Application for Allowance of Fees filed by Petitioner,

Baker, Smith & Mills, P.C. (““Baker, Mills’). Baker, Mills

had acted as litigation counsel for five debtors in consol-

idated cases in the Bankruptcy Court.

After an evidentiary hearing and argument, the

Bankruptcy Court entered an order awarding Baker,

Mills the amount of expenses requested and $40,000.00 of

the $50,142.46 requested for fees. Baker, Mills did not

appeal that reduction to the District Court.

2. The Appeal to the District Court and

Order of Reference to the Magistrate.

Respondents appealed the Bankruptcy Court’s deci-

sion to the District Court. The District Court, upon the

express consent of the parties, entered an order refer-

ring that appeal to a United Stated Magistrate pursuant

to 28 U.S.C. §636(c). (See Appendix at A-12). Based upon

his review of the record, the Magistrate agreed with the

reasoning of the Bankruptcy Court. He then reduced the

fee award by $4,381.00 (because of a purported failure of

proof), but otherwise affirmed the Bankruptcy Court’s

decision. (See Appendix at A-13).

3. The Appeal of the Fifth Circuit.

Respondents appealed the Magistrate’s decision

directly to the United States Court of Appeals for the

Fifth Circuit.’ The initial appeal to the Fifth Circuit, and

all briefs filed thereon, addressed the merits of the under-

lying case. However, while this case was awaiting oral

argument before the Fifth Circuit, that Circuit requested

Petitioner also filed a cross-appeal wherein it asserted that the

Magistrate’s reduction of the fee award was reversible error.

5

that the parties submit supplemental briefs addressing

the issue of whether 28 U.S.C. §636 authorizes reference

from the United States District Courts to the United

States Magistrates of appeals from decisions of the Unit-

ed States Bankruptcy Court in light of Matter of Elcona

Homes Corp., 810 F.2d 136 (7th Cir. 1988). Minerex,

supra, 838 F.2d at 782.

Both parties submitted briefs on that issue. Petitioner

argued that reference by consent was authorized.

Respondents argued to the contrary. On March 3, 1988,

the Fifth Circuit held that the District Court’s referral of

the bankruptcy appeal to the Magistrate was prohibited.

Id. at 781. The case was remanded to the District Court

for consideration of the appeal from the Bankruptcy

Court on the merits. /d. at 786.‘

REASONS FOR GRANTING THE PETITION

I

SPECIAL AND IMPORTANT REASONS EXIST

FOR WRIT OF REVIEW ON CERTIORARI

The decision of whether to grant a Petition for Writ of

Certiorari rests, of course, within the sound discretion of

this Court. Nonetheless, this Court has often granted

certiorari when there are “special and important reasons

therefor.” Sup. Ct. R. 17.1. Such reasons include the

existence of important questions relating to the adminis-

tration or enforcement of federal laws and novel ques-

tions involving the interplay of federal laws. Those rea-

sons exist here.°®

‘ The Fifth Circuit’s opinion was addressed exclusively to the pro-

priety of such referrals, and did not address any other issues raised

in the appeal to the Fifth Circuit.

See, e.g., Donaldson v. United States, 400 U.S. 517, 522 (1971)

6

More specifically, the Fifth Circuit’s decision precludes

the United States District Courts from referring Bank-

ruptcy appeals to United States Magistrates even with

the consent of the parties. It profoundly impedes the

ability of trial courts to efficiently administer their

dockets. Consequently, resolution of this issue will have

a profound impact on the efficiency of the United States

District Courts.

This Court has emphasized the importance of the effi-

cient administration of District Court dockets and the

vital role served by the Magistrates’ Act in providing

relief for overburdened judges. Mathews v. Weber, 423

U.S. 261, 268 (1976) (Congress, in contemplating the

Magistrates’ Act, recognized “that a multitude of new

statutes and regulations had created an avalanche of

additional work for the district courts which could be

performed only by multiplying the number of judges or

giving judges additional assistance.”); Accord, Pace-

maker Diagnostic Clinic of America, Inc. v. Instromedix,

Inc., 725 F.2d 537, 546 (9th Cir. 1984):

There are compelling reasons for the creation of an

infrastructure for determining certain civil cases

with the consent of the parties and subject to ju-

dicial control. Article III courts have the task of ad-

footnote 5, continued

(important questions relating to administration and enforcement of

federal revenue laws raised); United States v. An Article of Drug

_.. Bacto-Unidisk ..., 394 U.S. 784, 791 (1969) (certiorari granted

because interpretation of the Federal Food, Drug and Cosmetic Act

raised issues of importance in the administration of that Act); Unit-

ed States v. Muniz, 374 U.S. 150, 152 (1963) (review involving

important question of construction of the Federal Tort Claims Act);

Kossick v. United Fruit Co., 365 U.S. 731, 733 (1960) (certiorari

granted because case presented novel questions as to interplay of

state and maritime law.)

a

j

judicating an ever-mounting volume of cases.

Further, the entire character of litigation that fed-

eral courts principally face is changing.... The

Magistrate Act was shaped by these considerations.

See S.Rep. No. 74, 96th Cong., 125 Sess. 4-5, reprint-

ed in 1979 U.S. Cong. & Ad. News 1469, 1472-74.

Id. at 547.

The limitations on the use of Magistrates created by

the Fifth Circuit frustrates congressional efforts to

reduce the burden on District Courts. Furthermore,

because the Fifth Circuit’s decision (as well as that of the

Seventh Circuit) has a significant potential impact upon

the effective administration of justice by the District

Courts, that decision should be reviewed by this Court.

II.

NOVEL ISSUES CONCERNING THE

INTERPLAY OF TWO FEDERAL STATUTES

EXIST WHICH SHOULD BE DECIDED

BY THE SUPREME COURT

In addition, this Petition raises a novel question con-

cerning the interplay of the BRA, as modified by the

BAFJA, and the Magistrates’ Act. Specifically, the

question presented is whether Congress can be deemed

to have intended to limit the broad provisions of the

Magistrate’s Act so as to exclude referrals of bank-

ruptcy appeals, where the very Act purportedly exclud-

ing such referrals (the BAFJA): (1) contains no provi-

sion excluding such referrals; and (2) deleted the only

statutory provision in existence which expressly prohi-

bited such referrals.

ab

8

Section 636(c) (1) of the Magistrates’ Act provides that:

(c) Notwithstanding any provision of law to the

contrary

(1) Upon consent of the parties, a full-time United

States magistrate or a part-time United States mag-

istrate who serves as a full-time judicial officer may

conduct any or all proceedings in a jury or non-jury

civil matter and order the entry of judgment in the

case, when specially designated to exercise such

jurisdiction by the court or courts he serves.®

Id. (Emphasis added). In view of this broad language, it

would appear that such jursidiction exists unless the

Magistrates Act, 28 U.S.C. §631, et seg. was specifically

limited by later-enacted bankruptcy law. Indeed, the

BRA contained a specific statutory prohibition against

referral by a District Court of an appeal to a Magistrate

or a special master. 28 U.S.C. §1334(c) (1978).7 However,

in response to Northern Pipeline Construction Co. v.

Marathon Pipeline Co., 458 U.S. 50 (1982), Con-

gress restructured the Bankruptcy Courts through

passage of the BAFJA. Of particular significance, the

BAFJA repealed the Express Prohibition of Section 1334

(against referring appeals to magistrates) which had

been present in the original BRA.* See Elcona, supra,

810 F.2d at 139.

* Such designation has been made by Local Rule 1.3 of the United

Statcs District Court for the Northern District of Texas, Dallas

Division, pursuant to the Order for Adoption of Rules for the Exer-

cise of Powers and Performance of Duties by United States Magis-

trates for the Northern District of Texas (Misc. Rule No. 6) (N.D.

Tex. Amended Mar. 2, 1982).

This prohibition was referred to by the Fifth Circuit, and is referred

to herein, as the “Express Prohibition.” See Minerex, supra, 838

F.2d at 783.

~ As the Fifth Circuit points out, “the Express Prohibition was just

9

In addition to the deletion of the Express Prohibition

from Section 1334, the BAFJA added 28 U.S.C. §158.

That statute provides that the District Courts shall have

jurisdiction “to hear appeals from final judgments ....

of bankruptcy judges,” and further provides that refer-

rals of such appeals to appropriately constituted bank-

ruptcy appellate panels’ “may” be had in appropriate

circumstances. Id.

However, Section 158 does not state that the appellate

jurisdiction of the District Courts is exclusive, nor does it

expressly (or impliedly) prohibit referrals of such appeals

to the United States Magistrates. Moreover, the District

Courts would retain both jurisdiction over such appeals

and supervisory authority over the Magistrates even if

such referrals were made.

Congress limited the magistrate’s role in cases

referred to him under [the Magistrates’ Act]. The

Act’s sponsors made it quite clear that the magis-

trate acts “under the supervision of the district

judges when he accepts a referral, and that author-

ity for making final decisions remains at all times

with the district judge ...” [A] district judge would

retain ultimate responsibility for decision making in

every instance in which a magistrate might exercise

additional duties jurisdiction.”

Mathews, supra, 423 U.S. at 270.

Nevertheless, the Fifth Circuit has found an implicit

intent on the part of Congress to prohibit referrals of

bankruptcy appeals in the face of Congress’ deletion of

footnote 8, continued

plain gone altogether” upon enactment of the BAFJA. Minerex,

supra, 838 F.2d at 786.

* The Fifth Circuit has not established such a panel. Minerex, supra,

838 F.2d at 786, n.23.

10

the only explicit prohibition contained in the United

States Code. However, the Fifth Circuit’s analysis con-

travenes the rules articulated by this Court for statu-

tory construction.

This Court has explained that where Congress

includes limiting language in an earlier version of a

statute but deletes such language in the enactment of a

later version, it may be presumed that the limitation

was not intended. Russello v. United States, 464 US.

16, 23-24 (1983). Judicial construction cannot be utilized

to encompass within a statute’s meaning something

obviously omitted from its terms. United States uv.

Standard Oil Co., 384 U.S. 224, 225 (1966); United

States v. Brown, 333 U.S. 18, 25-26 (1948).

Furthermore, where two statutes are capable of coex-

istence, it is the duty of the courts, absent a clearly

expressed contrary congressional intention, to give effect

to each in a consistent and harmonious manner. Ruckels-

haus v. Monsanto Co., 467 U.S. 986, 1018 (1984); Watt v.

Alaska, 451 U.S. 259, 266-67 (1981). However, in this

case, the Fifth Circuit has interpreted 28 U.S.C. §158 in a

vacuum, ignoring the compatible provisions of the Mag-

istrates Act.

It is clear from these rules of construction that juris-

diction exists for the District Court to refer bankruptcy

appeal matters to a Magistrate by consent. When Con-

gress deleted that Express Prohibition in the transition

from the BRA to the BAFJA, it must have intended that

the prohibition should cease. Any other interpretation

would render the deletion of former section 1334(c) a

11

nullity. Such an interpretation is, therefore, impermissi-

ble. United States v. Turkette, 452 U.S. 576, 580 (1981);

see United States v. Mendoza, 565 F.2d 1285, 1289 (5th

Cir. 1978). Moreover, consideration of the strong legisla-

tive intent expressed in the very terms of subpart (c) of

the Magistrates’ Act, and the BRA/BAFJA transition

ineluctably leads to the conclusion that jurisdiction

exists for referrals of bankruptcy appeals to Magistrates

Py consent under Section 636(c) and that such referrals

are not prohibited by Section 158.

This question, moreover, remains one which should be

addressed by the Court. if review is not granted, the

interplay between the BRA-BAFJA and the Magistrates’

Act will remain incorrectly construed, and thus the effi-

cient administration by the District Courts of their

dockets will be impaired.

12

CONCLUSION

In view of the foregoing, this Petition for Writ of Cer-

tiorari should be granted.

Respectfully submitted,

RY R] SELINGER

punsel lof Record

Avip E. Howe

ALYSON C. DOVER

BAKER, Mitis & GLast, P.C.

500 Trammell Crow Center

2001 Ross Avenue

Dallas, Texas 75201-2916

(214) 220-8200

Attorneys for Petitioner

+

APPENDIX

A-1

APPENDIX

MINEREX ERDOEL, INC., et al.,

Plaintiffs-Appellants,

Cross-Appellees,

Vv.

SINA, INC., et al.,

Defendants

Baker, Smith & Mills, f/k/a Baker, Miller,

Mills & Murray, Defendants-Appellees

Cross-Appellants

No. 86-1449.

United States Court of Appeals,

Fifth Circuit.

March 3, 1988.

Appeals from the United States District Court

for the Northern District of Texas

Before CLARK, Chief Judge, BROWN, and JOHNSON,

Circuit Judges.

JOHN R. BROWN, Circuit Judge:

Nominally this appeal concerns the proper allowance of

counsel fees in a bankruptcy case. We never get to the

merits of that controversy, because the Distzict Court on

the appeal from the bankruptcy court referred the appeal

to a magistrate for determination. We hold such reference

improper and reverse the unauthorized decision by the

magistrate.

In the Beginning

The firm of Baker, Smith and Mills originally under-

esi ees

A-2

took simultaneously to represent before the bankruptcy

court both (i) a set of four limited partnerships that all filed

for reorganization protection pursuant to Chapter 11 of the

Bankruptcy Code, 11 U.S.C. § 101 et seq., and (ii) a corpo-

ration, Sina, Inc., which served as a general partner of

each of those four limited partnerships. A second corpora-

tion, Minerex Erdoel, Inc., which also served as a general

partner of each of those same four limited partnerships,

protested allowance of Baker, Smith’s fees. Minerex

alleged that the existence of a dispute over the amount of

the “management fee” due to Sina, Inc. from the four

limited partnerships created a conflict of interest which

precluded simultaneous representation of Sina, Inc. and

the four limited partnerships.

Without expressly addressing the issue of a conflict of

interest, the bankruptcy court awarded Baker, Smith the

full amount of expenses and approximately 80 percent of

the fees the firm had requested. The bankruptcy court

expressly provided, however, that these awards were sub-

ject to later reallocation or reassessment.

Minerex appealed that decision to the District Court,

and upon the express consent of the parties, the District

Court referred that appeal to a United States magistrate,

28 U.S.C. §636.! The magistrate concluded that “it is clear

that the bankruptcy judge necessarily found [that] no con-

flict existed between the interest of Sina, Inc. and of the

| 28 U.S.C. § 636 provides in pertinent part:

(c) Notwithstanding any provision of law to the contrary —

(1) Upon the consent of the parties, a full-time United States mag-

istrate or a part-time United States magistrate who serves as a

full-time judicial officer may conduct any or all proceedings in a

jury or nonjury civil matter and order the entry of judgments in

the case, when specially designated to exercise such jurisdiction

by the district court or courts he serves.

A-3

[four] limited partnerships in [ Baker, Smith’s] representa-

tion.” The magistrate reduced the fee award by $4,381.00,

but otherwise affirmed the bankruptcy court order, with no

further review by the District Court. Then followed this

appeal by Minerex of the allowance of the fees and ex-

penses to Baker, Smith and the cross-appeal by Baker,

Smith of the reduction in the fee.

New Light from the Seventh

While the case was awaiting oral argument before this

court, the Court of Appeals for the Seventh Circuit

handed down its decision in Jn the Matter of Elcona

Homes Corporation, 810 F.2d 136 (7th cir. 1987), in light

of which we requested supplemental briefs addressing the

issue of whether § 636 authorizes reference to a United

States magistrate of an appeal from a bankruptcy court

decision. We do not reach the merits of the fee dispute,

because we here examine 28 U.S.C. § 1582 and decide that

such a reference is not authorized. Accordingly, we vacate

the judgment and remand with instructions that the Dis-

trict Court itself consider the appeal from the bankruptcy

court.

Back of the Beginning: The Origin of the

Bankruptcy Reform Act of 1978

In order to determine whether or not Congress

intended for appeals from bankruptcy court decisions to

be included within the very wide range of matters which

§ 636 permits a District Court to refer to a magistrate, it is

necessary to trace through in some detail the fairly

tumultuous course of changes in the United States Bank-

ruptcy Court system that began with the major recon-

struction effected by the Bankruptcy Reform Act of 1978

’ See n. 21, infra, for the text of this section.

A-4

(BRA).° That Act created a bankruptcy court in each

judicial district, as an “adjunct to the district court.” The

judges of these bankruptcy courts were to hold office for a

term of fourteen years® and be paid a salary subject to

annual adjustment upward or downward.® Section 241(a)

of BRA added a new Chapter 90 to Title 28 of the U.S.

Code, concerning the relationship between the district

courts and the bankruptcy courts. That chapter included

§ 1471, which prescribed the jurisdiction of the bank-

ruptcy courts.’

For purposes of the instant case, the most important

change effected by BRA was accomplished in § 238(a) of

the Act, which completely rewrote 28 U.S.C. § 1334° con-

’ P.L. 95-598, 95th Cong., 2d Sess. (1978), reprinted in 1978 U.S. Code

Cong. and Ad. News (92 Stat.) 2549 et seg.

' Section 201(a) of BRA (28 U.S.C. § 151(a)).

» Section 201(a) of BRA (28 U.S.C. § 153(a)).

® Section 201(a) of BRA (28 U.S.C. § 154). The adjustments are made

under § 225 of the Federal Salary Act of 1967 (2 U.S.C. §§ 351-361)

and are subject to 28 U.S.C. § 461.

’ 28 U.S.C. § 1471 reads as follows:

(a) Except as provided in subsection (b) of this section, the district

courts shall have original and exclusive jurisdiction of all cases

under title 11.

(b) Notwithstanding any Act of Congress that confers exclusive

jurisdiction on a court or courts other than the district courts, the

district courts shall have original but not exclusive jurisdiction of

all civil proceedings arising under title 11 or arising in or related to

cases under title 11.

(c) The bankruptcy court for the district in which a case under title

11 is commenced shall exercise all of the jurisdiction conferred by

this section on the district courts.

(d) Subsection (b) or (c) of this section does not prevent a district

court or a bankruptcy court, in the interest of justice, from abstain-

ing from hearing a particular proceeding arising under title 11 or

arising in or related to a case under title 11. Such abstention, or a

decision not to abstain, is not reviewable by appeal or otherwise.

(e) The bankruptcy court in which a case under title 11 is com-

menced shall have exclusive jurisdiction of all of the property,

wherever located, of the debtor, as of the commencement of such

case.

* 28 U.S.C. § 1334 as enacted in BRA provided as follows:

A-5

cerning appeals from bankruptcy court decisions. Under

that change, § 1334 provided, in subsections (a) and (b),

that under certain conditions the District Court of the dis-

trict in which a bankruptcy court operated would have

non-discretionary® jurisdiction of appeals from all final

judgments, orders, and decrees and permissive jurisdic-

tion of appeals from interlocutory orders of the bank-

ruptcy court of that district. Sub-section (c) of 28 U.S.C. §

1334 contained a provision explicitly stating that “a Dis-

trict Court may not refer an appeal under that section to

a magistrate or to a special master.” Because of its

extreme importance, we refer to this provision as the

“Express Prohibition.” Offhand, the antecedent of the

words “that section” appearing in § 1334(c) would seem to

be the phrase “section 160 of this title’ appearing in §

1334(a).!° But as pointed out in n. 10, supra, two courts

footnote 8 continued

Bankruptcy Appeals

(a) The district courts for districts for which panels have not been

ordered appointed under section 160 of this title shall have juris-

diction of appeals from all final judgments, orders, and decrees of

bankruptcy courts.

(b) The district courts for such districts shall have jurisdiction of

appeals from interlocutory orders and decrees of bankruptcy

courts, but only by leave of the district court to which the appeal

is taken.

(c) A district court may not refer an appeal under that section toa

magistrate or to a special master.

(Emphasis supplied).

® See In re Bestmann, 720 F.2d 484 (8th Cir. 1983).

\O lf that is indeed the case, § 1334(c) is superfluous or nonsensical,

since an appeal under 28 U.S.C. § 160 is heard not by a district

court, but instead by a panel of bankruptcy judges with further

appeal directly to the court of appeals, 28 U.S.C. § 1293. Under

basic principles of statutory construction, “where the language of a

statute is of doubtful meaning or where an adherence to the strict

letter would lead to absurdity, or to contradictory provisions, .. .

the real meaning of the statute is to be ascertained and declared,

even though it seems to conflict with the words of the statute.” 82

C.J.S. Statutes § 322(bX3) (1953). See also United States v. Amert-

can Trucking Associations, 310 U.S. 534, 60 S.Ct. 1059, 84 L.Ed.

A6

in Elcona and Morrissey read § 1334(c) as if the words

“that section” were absent. On this reading the words

should be “this section,” signifying § 1334 itself and not

28 U.S.C. § 160.

The legislative history of BRA does not address specif-

ically the reasons for the enactment of the Express Pro-

hibition. That legislative history does show, however,

that Congress was quite conscious of the fact that,

because the bankruptcy judges lacked life tenure and pro-

tection against salary diminution, the Bankruptcy Court

it sought to create could not stand against Article III of

the U.S. Constitution'! unless Congress made that court

to a sufficient extent the creature of the District Court.!”

footnote 10 continued

1345 (1940), reh’g denied, 311 U.S. 724, 61 S.Ct. 53, 85 L.Ed. 472.

Two other courts have previously undertaken to ascertain and

declare that “real meaning” with respect to § 1334(c). In Re Morris-

sey, 717 F.2d 100 (3rd Cir. 1983) (while finding § 1334(c) “unambig-

uous,” court declared that it “prohibited a district court from refer-

ring a bankruptcy appeal to a magistrate’); In the Matter of

Elcona Homes Corporation, 810 F.2d 136 (7th Cir. 1987) (“under the

BRA, district courts clearly were prohibited from referring appeals

from bankruptcy court decisions to magistrates: ‘A district court

may not refer an appeal .. . to a magistrate or to a special mas-

ter.’’) (quoting 28 U.S.C. § 1334(c) (1982) and also citing Morrissey;

omission as in original quotation).

'! Article III provides that:

[t]he judicial power of the United States, shall be vested in one

supreme Court, and in such inferior Courts as the Congress may

from time to time ordain and establish. The Judges, both of the

supreme and inferior Courts, shall hold their offices during good

Behaviour, and shall, at stated Times, receive for their Services, a

Compensation, which shall not be diminished during their Con-

tinuance in Office.” U.S. Const. art. III, § 1.

'2 See S. Rep. No. 95-989, 95th Cong., 2d Sess. 16 (1978), reprinted in

1978 U.S. Code Cong. and Ad.News 5787, 5802. This awareness

may be what prompted Congress to enact the Express Prohibition.

It is not necessary here to do more than set forth this possibility

appearing in the legislative history, because as we elaborate, con-

gressional intent in the enactment or repeal of the Express Prohi-

bition has less, if any, significance in our analysis than the intent

that underlay congressional actions in enacting the Bankruptcy

Amendments and Federal Judgeship Act of 1984 (BAFJA).

ee

A-7

The year following BRA, Congress in the Federal Mag-

istrate Act of 1979 (FMA)!* promulgated extensive addi-

tions to the original Magistrates Act.'4 Section 2 of the

FMA amended 28 U.S.C. § 636 for the purpose of enlarg-

ing the civil and criminal jurisdiction of United States

magistrates in order to improve access to the federal

courts.!> Following that amendment, § 636 contained the

language quoted at note 1 above, which expanded the

authority of magistrates to encompass the conducting of

“any or all proceedings in a jury or nonjury civil matter.”

That language appeared directly to contradict the

Express Prohibition, which was at that time still in place

and which forbade reference of bankruptcy appeals to

magistrates. '®

The Fallout of Marathon

The next twist in the saga of the bankruptcy courts

came with the Supreme Court’s decision in Northern

Pipeline Construction Co. v. Marathon Pipeline Co., 458

U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). There the

Court ruled that “the broad grant of jurisdiction to the

bankruptcy courts contained in 28 U.S.C. § 1471 (1976 ed.,

Supp. IV) { was] unconstitutional.” Jd., at 87, 102 S.Ct. at

2880. More specifically, ‘“|t]he case’s holding is that

adjudication in federal courts on questions of state law

[which § 1471 would permit] cannot [constitutionally] be

13§. 237, 96th Cong., lst Sess. (1979), reprinted in 1979 U.S.Code

Cong. and Ad.News (93 Stat.) 643 et seq.

'4$. 945, 90th Cong., 2d Sess. (1968), reprinted in 1968 U.S. Code Cong.

and Ad.News 1280 et seq.

'5S.Rep. No. 96-74, 96th Cong., 1st Sess. 1 (1979), reprinted in 1979

U.S. Code Cong. and Ad.News 1469, 1469.

'6 Tf a direct conflict existed, § 636 would likely prevail both because it

was more recent than the Express Prohibition and because the

expansion of magistrates’ authority effected by § 636 was made

“[njotwithstanding any provision of law to the contrary.” Contra,

see In re Morrissey, 717 F.2d 100 (3rd Cir.1983) at 103, n. 4.

A-8

made by officers of the United States who neither enjoy

life tenure nor are controlled by lifetenured judges to a

greater degree than were bankruptcy judges under

[BRA].” Appendix 1 L. King, Collier on Bankruptcy 1672

(15th ed. 1979).

Four opinions were filed in Marathon,'’ containing

conflicting signals which limited the utility of that deci-

sion as guidance for Congress. Even so, the decision did

convey as much as that if the bankruptcy courts were

brought somehow under the wing of the Art. III courts to

a greater extent, then they could stand under Art. III.

Congress pursued that goal in two ways when it

responded to Marathon in the Bankruptcy Amendments

and Federal Judgeship Act of 1984 (BAFJA).'* First,

BAFJA emphasized the structural relationship between

the bankruptcy court and the Art. III courts, by expressly

providing that the bankruptcy judges in each judicial dis-

trict “shall constitute a unit of the district court to be

known as the bankruptcy court for that district.’’!”

Second, BAFJA specifically prescribed the treatment of

appeals from the rulings of bankruptcy judges. BAFJA

did so by gathering together the several scattered provi-

sions of the BRA*® which dealt with various aspects of

bankruptcy appeals and assembling them into a single

'? Justice Brennan wrote the opinion for the plurality, joined by Jus-

tices Marshall, Blackmun and Stevens. Justice O’Connor joined in

an opinion by Justice Rehnquist concuring in the judgment.

Finally, Chief Justice Burger filed a dissenting opinion of his own

and along with Justice Powell also joined in a second dissenting

opinion by Justice White.

'S H.R. 5174, 98th Cong., 2d Sess. (1984), reprinted in 1984 U.S.Code

Cong. and Ad. News (98 Stat.) 333 et seq.

'° Section 104(a) of BAFJA (28 U.S.C. § 151).

-” Those codified at 28 U.S.C. §§ 160, 1293, 1334, 1408, and 1482.

A-9

comprehensive scheme for such appeals, which BAFJA

codified at 28 U.S.C. § 158.2! BAFJA also completely re-

wrote 28 U.S.C. § 1334. By it the Express Prohibition was

repealed by simple omission.?2 BAFJA did not elsewhere

preserve the Express Prohibition by incorporating it or

words to the same effect into some other section of either

Title 11 or Title 28; the Express Prohibition was just plain

gone altogether.

21 Section 104(a) of BAFJA added 28 U.S.C. § 158, which provides as

follows:

Appeals:

(a) The district courts of the United States shall have jurisdiction

to hear appeals from final judgments, orders, and decrees, and,

with leave of the court, from interlocutory orders and decrees, of

bankruptcy judges entered in cases and proceedings referred to

the bankruptcy judges under section 157 of this title. An appeal

under this subsection shall be taken only to the district court for

the judicial district in which the bankruptcy judge is serving.

(b)\(1) The judicial council of a circuit may establish a bankruptcy

appellate panel, comprised of bankruptcy judges from districts

within the circuit, to hear and determine, upon the consent of all

the parties, appeals under subsection (a) of this section.

(2) No appeal may be referred to a panel under this subsection

unless the district judges for the district, by majority vote, author-

ize such referral of appeals originating within the district.

(3) A panel established under this section shall consist of three

bankruptcy judges, provided a bankruptcy judge may not hear

an appeal originating within a district for which the judge is

appointed or designated under section 152 of this title.

(c) An appeal under subsections (a) and (b) of this section shall

be taken in the same manner as appeals in civil proceedings

generally are taken to the courts of appeals from the district

courts and in the time provided by Rule 8002 of the Bankruptcy

Rules.

(d) The courts of appeals shall have jurisdiction of appeals from

all final decisions, judgments, orders, and decrees entered under

subsections (a) and (b) of this section.

Following BAFJA, 28 U.S.C. § 1334 (except for one technical cor-

rection made in 1986) was identical to the current version of that

section:

Bankruptcy cases and proceedings:

(a) Except as provided in subsection (b) of this section, the dis-

trict courts shall have original and exclusive jurisdiction of all

cases under title 11.

(b) Notwithstanding any Act of Congress that confers exclusive

A-10

We are firmly convinced that § 158 can and must be

taken at face value. Section 158 provides an intricate,

balanced, and elaborate scheme for bankruptcy appeals

carefully and thoughtfully crafted by Congress. Under

that scheme, appeals could be taken either to (i) the Dis-

_ trict Court or (ii) to a panel of bankruptcy judges.2* No

other type or kind of appeal was recognized, acknowl-

edged, or permitted under that scheme. Nor is there even

any indication in the legislative history of BAFJA that

any other type or kind of appeal ever was contemplated.

footnote 22 continued

jurisdiction on a court or courts other than the district courts, the

district courts shall have original but not exclusive jurisdiction

of all civil proceedings arising under title 11, or arising in or

related to cases under title 11.

(cX1) Nothing in this section prevents a district court in the

interest of justice, or in the interest of comity with State courts or

respect for State law, from abstaining from hearing a particular

proceeding arising under title 11 or arising in or related to a case

under title 11.

(2) Upon timely motion of a party in a proceeding based upon a

State law claim or State law cause of action, related to a case

under title 11 but not arising under title 11 or arising in a case

under title 11, with respect to which an action could not have

been commenced in a court of the United States absent jurisdic-

tion under this section, the district court shall abstain from hear-

ing such proceeding if an action is commenced, and can be

timely adjudicated, in a State forum of appropriate jurisdiction.

Any decision to abstain made under this subsection is not

reviewable by appeal or otherwise. This subsection shall not be

construed to limit the applicability of the stay provided for by

section 362 of title 11, United States Code, as such section applies

to an action affecting the property of the estate in bankruptcy.

(d) The district court in which a case under title 11 is commenced

or is pending shall have exclusive jurisdiction of all of the prop-

erty, wherever located, of the debtor as of the commencement of

such case, and of property of the estate.

-’ The judicial council of the Fifth Circuit has never yet acted, as

authorized by § 158(bX1), to “establish a bankruptcy appellate

panel, comprised of bankruptcy judges from districts within the

circuit” to hear appeals from bankruptcy court decisions. Until and

unless we do so, bankruptcy appeals in the Fifth Circuit may be

heard only by the District Court for the judicial district in which

the bankruptcy judge rendering the decision is serving.

A-11

[t is reasonable to conclude that had Congress meant for

its appeals scheme to include the potential for reference to

a magistrate, Congress would have expressly so provided.

Congress did not do so. Congress intended that its § 158

scheme be comprehensive and complete in itself, and that

the avenues for which it expressly provided be the exclu-

sive routes for bankruptcy appeals. Congress’ perception

that its final product was indeed comprehensive and

complete is reflected by its simultaneous deletion of the

Express Prohibition in the newly enacted § 1334 (see n.

22, supra).

We hold that the reference by the District Court to a

United States magistrate of an appeal from a bankruptcy

court decision was not proper. Such appeals may be

heard only as expressly provided in 28 U.S.C. § 158.74 We

vacate the decision of the District Court and remand for

further proceedings consistent with this opinion.

VACATED AND REMANDED.

24In U.S. v. Ford, 824 F.2d 1430 (5th Cir. 1987) (en banc), this court

held that District Courts lack authority under 28 U.S.C. § 636(bX3)

“to delegate to a magistrate as an ‘additional duty’ the power to

preside over the selection of the jury in felony cases.” The conclu-

sion we draw here is not inconsistent with the result we reached

there. The ruling in Ford turned primarily on § 636 and not, of

course, on § 158 or any of the other Judicial Code provisions

enacted by BAFJA and germane only to bankruptcy.

A-12

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

Dallas Division

Civil Action No.

CA 3-85-1099-T

MINEREX ERDOEL, INC., et. al.,

Plaintiffs,

v.

BAKER, SMITH & MILLS, et al.,

Defendants.

ORDER

On September 12, 1985, the parties filed their required

status report. It appears from such status report that the

parties have consented in writing to trial in this case

before a United States Magistrate in accordance with 28

U.S.C §636(c).

It is therefore ORDERED by the court that this case

be, and it is hereby, REFERRED to the United States

Magistrate for the conduct of all further proceedings and

the entry of judgment in accordance with 28 U.S.C.

§$636(c), with any appeal therefrom to be taken to the Uni-

ted States Court of Appeals for the Fifth Circuit in accord-

ance with 28 U.S.C. §636(c)(3).

SO ORDERED.

September 17, 1985.

/s/_ A. Joe F isu

United States District Judge

A-13

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

Dallas Division

CA3-85-1099-AH

MINEREX ERDOEL, INC., et al.,

Vs.

BAKER, SMITH & MILLS, et al.,

MEMORANDUM OPINION AND ORDER

Pursuant to the provisions of 28 U.S.C. §636(c) and the

written consent of the parties came on to be considered the

appeal from the Bankruptcy Court’s Order filed on

December 7, 1984, and its subsequent memorandum opin-

ion filed on March 13, 1985, granting an Application of

Award of Fees to the law firms of Baker, Smith and Mills,

and McDonald, Carano, Wilson, Bergin, Frankovich &

Hicks, and having considered the briefs of the affected

parties and the record filed for appellate review, the court

makes the following findings of fact, conclusions of law

and orders as follows:

Parties: The Appellants are Minerex Erdoel, Inc., Karl-

Heinz Krueger and Otto Hackober. The Appellees are the

law firms of Baker, Smith & Mills (Baker, Smith) and of

McDonald, Carano, Wilson, Bergin, Frankovich & Hicks

(McDonald, Carano).

Issues Presented on Appeal

1. Did the Bankruptcy Court err in requiring the Debtor-

limited partnerships to pay the attorneys’ fees of the

separate estate of the Debtor-general partner?

ll

A-14

2. Did the Bankruptcy Court err in awarding attorneys’

fees because of a conflict of interest which existed in the

attorneys’ representation of both the Debtor-limited part-

nerships and the Debtor-general partner?

Statement of Facts: In order to understand the Bank-

ruptcy Court’s order and to assay whether such order was

proper or erroneous, a brief overview of the factual setting

as it existed prior to these bankruptcy proceedings and

after the petitions were filed, is appropriate and necessary.

The five relevant debtors are Sina, Inc. (Sina, Inc.), a

Nevada corporation, and four Nevada limited partner-

ships, Sina 77/78 Ltd., Sina 78/79 Ltd., Sina 79/80 Ltd.,

and Sina 80/81 Ltd. (Sina Limited Partnerships).

Each of the four limited partnerships was organized as

part of a series of tax-sheltered oil and gas ventures in the

United States which was marketed to German national

investors. In turn each of the limited partnerships was

comprised of a three-tiered structure designed to maximize

tax sheltering benefits to individual investors. The bottom

tier consisted of investment programs (Beteiligungspro-

gramme), silent partnerships purchased by individuals.

The second tier consisted of a limited German partnership

(Kommandatitsgessellschaft or KG) comprised of the

silent partnership(s) as a limited partner and Minerex

Erdoel und Gasfoerderungs GmbH & Co. (Minerex

GmbH), a German corporation as the general partner. The

third tier consisted of a Sina Limited Partnership com-

prised of one of the German partnerships (KG’s) as a

limited partner and Sina, Inc. as the general partner. Each

Sina Limited Partnership was structured as a Nevada

limited partnership.

The capital utilized to underwrite each Sina Limited

ll

A-15

Partnership drilling program came from the German

individuals’ investments. Sina, Inc. was responsible to

hire personnel to operate and oversee the drilling pro-

grams for which it received compensation from each Sina

Limited Partnership.

In the spring of 1982 the relationship between the Ger-

man investors and Sina, Inc., took a turn for the worse. At

this time the cost of oil exploration had increased, and

there is some indication from the record that German tax-

ing entities began to scrutinize tax sheltering programs

such as the Sina Limited Partnerships. The precipitating

factor, however, appears to be the individual investors’

dissatisfaction with the meager income, if any, generated

by the partnerships and Sina, Inc.’s method of reporting

expenditures and its general administration of the part-

nerships. As a result an agreement was reached whereby a

co-general partner, controlled by the individual investors,

was appointed, which was given veto power over expendi-

tures on behalf of the Sina Limited Partnerships. Minerex,

Inc., one of the Appellants, was organized as a Nevada

corporation, and became the general co-general partner

with Sina, Inc. in the limited partnerships in the summer

of 1982.

The success of this attempted resolution proved to be

short lived. The representatives of Minerex, Inc. appar-

ently believed that Sina, Inc. was continuing to make

unauthorized expenditures from the Sina Limited Part-

nerships for its own benefit and was approving payments

to others which were inappropriate. For its part, Sina, Inc.

took the stance that Minerex, Inc., had taken an obstruc-

tionist position and was refusing to authorize needed

expenditures which in turn threatened the economic via-

bility of the partnerships. Notwithstanding this uneasy

A-16

relationship Minerex, Inc.’s term as a co-general partner

was extended. However, Sina, Inc. instituted a suit in a

Nevada State court seeking a declaration of its right to

fees from the partnership entities and for an accounting.

Minerex, Inc., sought the appointment of a receiver in

Nevada, and also obtained an ex parte temporary res-

training order maintaining its status as a co-general

partner with Sina, Inc. Minerex, Inc. obtained a hearing

date for a preliminary injunction in the Nevada State

court to be held on April 15, 1983.

On April 14, 1983, the Sina Limited Partnerships filed

voluntary petitions in bankruptcy in this court, and on

April 15, 1983, before the Nevada State court hearing

commenced Sina, Inc. filed its petition in this court. The

appellee law firms participated in the filing of each of the

bankruptcy petitions. In the schedules filed by the Sina

Limited Partnerships the Applicants-Appellees, acting as

co-counsel, listed management fees owed to Sina, Inc. as

liquidated, undisputed debts. This did not end the chain of

events, but the above provides a sufficient factual back-

ground for consideration of the issues presented in this

appeal.

FINDINGS OF FACT AND CONCLUSIONS

OF LAW

Although listed second in the Appellants’ brief the con-

flict of interest issue is the predominant issue and is there-

fore considered initially. Appellants correctly observe that

Judge Ford did not expressly consider the conflict of inter-

est issue in either this December 7, 1984 order or the mem-

orandum opinion which followed on March 13, 1985. How-

ever, in the face of the Supreme Court’s decision in Woods

v. City National Bank & Trust Co., 312 U.S. 262, 268

(1941), holding that when an actual conflict of interest

—_—_

A-17

exists compensation to counsel should be denied, it is clear

that the Bankruptcy Judge necessarily found that no con-

flict existed between the interests of Sina, Inc. and of the

Sina Limited Partnerships in Applicant-Appellees’ repre-

sentation for which Judge Ford found that they are

entitled to compensation.

Although Appellants cite case authority which holds

that conflict of interest issues are matters of law, e.g. Mat-

ter of Philadelphia Athletic Club, Inc., 20 B.R. 328, 331-

332 (E.D. of Pa. 1982), the law in this Circuit is that such

issue raises matters of fact as well as law. Brennan’s v.

Brennan’s Restaurant, Inc., 590 F.2d 168, 173-74 (5th Cir.

1979); Matter of Consolidated Bancshares, Inc., _— F.2d

___ (No. 85-1626, 5th Cir. 1986, slip opinion 4572, et seq, at

page 4583). On questions of fact Rule 8013 of the Rules of

Bankruptcy Procedure requires the court to accept find-

ings of fact unless clearly erroneous.

Conflicts of interest questions present a particularly

complex area in the context of bankruptcy proceedings.

While it is clear from the Supreme Court’s decision on

Woods, supra, that the courts must guard against actual

conflicts, the bankruptcy courts must also approach such

issues with the knowledge that actions designed to insure

against the possibility of any conflict may well encumber

the bankrupt estate with additional attorneys and admin-

istrative expenses to the detriment of both creditors and

the petitioning party seeking reorganization under Chap-

ter 11. Because of the great volume of cases coming before

it the Bankruptcy Judge must heavily rely on the advice

and counsel of attorneys and other professionals in dis-

charging his duties. Accordingly the questions of conflict

in the context of bankruptcy proceedings must be deter-

mined in light of the practical realities which exist in such

arti

Xw——————————

A-18

proceedings. In re Carla Leather, Inc., 44 BR 457, 474 (S.D.

N.Y. 1984); In re Iorizzo, 35 B.R. 465, 466-68 (Bankr. E.D.

N.Y. 1983).

The schedules filed by the Sina Limited Partnerships

reflecting liquidated sums owed to Sina, Inc. unquestiona-

bly demonstrate a potential conflict of interest between the

estates of the partnerships and the corporation. However,

this potential conflict cannot be said to have ripened into

an actual conflict unless it appears from the record that

the Applicant-Appellees seek compensation for services

performed in which they took an adversarial posture vis-a-

vis the interests of their several clients.

Notwithstanding this potential for conflict of interest

Appellants did not interdict an objection to the Applicant-

Appellees’ application for a nunc pro tunc order approving

Baker, Smith as co-counsel for all five petitioners. The

bankruptcy court entered its order approving the applica-

tion on August 26, 1983.

From the record on appeal it appears that the first occa-

sion that Minerex, Inc. squarely raised a conflict of inter-

est claim in opposition to the Appellees’ application for

compensation was in its Memorandum in Support of

Motion to Disqualify Debtors’ Counsel and in opposition

to Second Applications for Interim Fees (Appendix,

Volume I, Item 5). On April 13, 1984, the Bankruptcy

Judge entered an order approving the second application.’

A similar objection was made to Baker, Smith’s Third

Interim Application for Allowance of Fees and Expenses

(Id, Vol. I, Item 8). On August 1, 1984, the District Court

entered its order granting Baker, Smith’s application in

part and without prejudice to Baker, Smith’s right to seek

A copy of this order has not been included in the Appendix.

A-19

the balance of fees requested. The court determined inter

alia that Baker, Miller had met the guidelines for represen-

tation previously imposed and that the services rendered

were in good faith (Id, Vol. I, Item 9).?

The final application which is at issue, was filed by

Baker, Miller on or about October 25, 1984, (Id, Vol. I, Item

10). Appellants filed their opposition which again raised

the conflict of interest claim (Id, Vol. I, Item 11). Following

a hearing on Appellees’ application on December 7, 1984,

the Bankruptcy Judge awarded a substantial portion of

the fees sought by Baker, Miller and apparently all of the

compensation sought by McDonald, Carano (Id, Vol. I,

Item 12) implicityly rejecting Appellants’ conflict of inter-

est claim for the third time.

As noted above, the standard of review of fact findings

is the clearly erroneous test. Accordingly the Appellants

shoulder the burden of demonstrating that the Appellees

were performing under a conflict of interest while render-

ing services for which they were compensated from Feb-

ruary 18, 1984 through September 24, 1985.‘

2 The first three orders granting Appellees’ interim attorneys’ fees and

expenses are not before the court on his appeal, but are related to

flesh out the factual background leading up to the order which is the

subject of this appeal.

‘ It is not entirely clear from the pleadings whether Appellants are

attacking the award of fees to McDonald, Carano. However, if it be

assumed that such a claim is asserted, Appellants have waived their

right to complain since both the record on appeal and Appellants’

Brief filed on October 15, 1985 and their Reply Brief filed on

December 31, 1985, are totally silent on this issue. United States v.

Miller, 666 F.2d 991, 998, n. 6 (5th Cir.), cert. den. 456 U.S. 964 (1982).

‘ In granting Applicants’ Third Interim application in part in the sum

of $30,000.00 in fees and $7,125.26 for expenses, the District Court did

not disallow any specific item sought by Baker, Miller nor did it

attribute the award made to any specific work of counsel or expense

incurred (Appendix, Vol. I, Item 9). Therefore the court must also

review the schedule of charges attached to Applicants’ Third Interim

Application as well.

A-20

Appellants argue that resolution of the conflict of inter-

est issue requires that the court consider the underlying

“management fee” dispute between Sina, Inc. and the

Sina Limited Partnerships. Although the record demon-

strates that the amount of fees and the circumstances

under which such fees would accrue as obligations of the

limited partnerships in favor of the corporation are dis-

puted matters, the resolution of which will unquestionably

affect the value of the petitioners’ estates, this issue is

irrelevant to the matter under review except to the extent

that it appear that Applicants-Appellees seek recovery of

fees and expenses incurred in advancing the adversarial

interests of Sina, Inc. against the estates of the limited

partnerships. Such efforts wuld constitute an actual con-

flict of interest which would preclude recovery of any fees.

Woods v. City National Bank & Trust Co., supra.

In considering Judge Ford’s award of fees and expenses

under the clearly erroneous standard the court has reviewed

the schedules of fees and expenses submitted contempo-

raneously with Applicants’ Third Interim Application and

their final application (Id. Vol. I, Items 7 and 10), the tes-

timony presented at the evidentiary hearing on December

7, 1984, and the historical events related in the Bank-

ruptcy Judge’s memorandum opinion filed on March i3,

1985.

During the fee period in question Karl-Heinz Kruger

and others filed an adversary proceeding against Sina,

Inc. and the Sina Limited Partnerships seeking to in-

stitute a class action for damages in excess of

$100,000,000.00. Baker, Smith filed a joint motion to dis-

miss on behalf of all petitioners together with a memoran-

dum brief. This unified response, seeking dismissal on

procedural grounds oniy, did not assert an adversarial

A-21

posture between the corporation and the partnerships (See

Exhibit 7, Appendix to Appellees’ Brief). Appellees also

instituted an adversary proceeding on behalf of all peti-

tioners against Messrs. Karl-Heinz Kruger and Otto

Hackober for alleged destruction of the economic value of

the limited partnerships. The applicants have proceeded

in good faith in representing the interests of all petitioners

and are entitled to compensation.

Part of the fees and expenses sought by Applicants-

Appellants pertain to their efforts in preparing for and

participating in the Rule 2004 deposition of Peter Lang

Nevin, Sina, Inc.’s president which took place in February

1984 for which Mr. Selinger charged 33.7 hours at the rate

of $130.00 per hour ($4,381.00). The record is devoid of any

indication that these activities benefitted the limited part-

nerships or that the deposition inquiry was directed to the

estates of the partnerships. Where the work performed was

primarily, if not exclusively, related to the affairs of only

one debtor, fees for such work should not be taxed against

the estates of the other debtors. J.J. Bradley & Co., Inc., 2

C.B.C. 2nd 1245 (Bankr. S.D. N.Y. 1980). Insofar as the

Applicants seek recovery for fees incurred in representing

Sina, Inc.’s president during the deposition in F ebruary

1984, such award against the limited partnerships’ estates

is without support in the record, and the Bankruptcy

Judge’s order to such extent is clearly erroneous.

The second issue presented for review is whether the

bankruptcy court abused its discretion in requiring that

Applicants’ fees award be paid from the estates of the

limited partnerships.

As with all previous orders granting attorneys’ fees in

these bankruptcy proceedings, the Bankruptcy Judge’s

award was without prejudice to reallocation, assessment

A-22

and payments of fees to responsible parties in the adver-

sary proceedings. Thus while Appellants argue that the

fee award is borne by the limited partnerships to the

exclusion of Sina, Inc., the court’s order makes it patently

clear that the fees can be shifted among the estates of the

petitioners, if warranted, following resolution of the

adversary proceedings.

Of equal importance and apparently crucial to the Bank-

ruptcy Judge’s decision was the fact that the Appellants

agreed to an order regarding interim operations of the

debtor parties (Jd. Vol. I, Item 13, Memorandum Opinion

at page 8). As recited in the opinion this order (Brief,

Exhibit 6) provided inter alia that all on-going cash pay-

ments from the Sina Limited Partnerships to Sina, Inc.

would be suspended, leaving Sina, Inc. without any liquid

assets. Karl-Heinz Kruger, one of the appellants, executed

this order on behalf of Minerex, Inc. Likewise Appellants’

present counsel approved the order signed on June 24,

1983.

Having participated in a negotiated agreement whereby

all liquid assets would remain in the estates of the limited

partnerships, the Appellants are precluded from showing

an abuse of discretion on the part of the Bankruptcy Judge

in awarding attorneys’ fees for services performed for the

benefit of the estates of the limited partnerships as well as

the corporation, particularly where the allocation of the

award is subject to change based on subsequent

developments.

It Is THEREFORE, ORDERED that the Bankruptcy

Judge’s order of December 7, 1984, is affirmed in part and

modified in part as follows:

The order granting allowance of fees to the McDonald,

Carano law firm is in all respects affirmed.

A-23

The order granting allowance of fees and expenses to

the Baker, Smith law firm is affirmed in the amount of

$3,320.00 for expenses, and is modified by reducing the

amount of fees to the sum of $35,619.00.

It Is FURTHER ORDERED that the stay previously

imposed on the granting of fees and expenses is set aside.

A copy of this order shall be transmitted to counsel for

the parties.

ENTERED this 22nd day of May, 1986.

United States Magistrate

A-24

APPENDIX D

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

Dallas Division

Civil Action No.

CA 3-85-1099-T

MINEREX ERDOEL, INC. , et al.,

Appellants,

v.

BAKER, SMITH & MILLS, et al.,

Appellees.

CONSENT

Pursuant to 28 U.S.C. §636(c), the parties to the instant

matter hereby consent to assignment of the instant matter

to the Honorable William F. Sanderson, Jr., United States

Magistrate for the United States District Court, Northern

District of Texas.

Dated this 12th day of September, 1985.

BAKER, SMITH & MILLs, P.C.

1910 Pacific Avenue

1000 Pacific Place

Dallas, Texas 75201

214/969-0300

By: /s/__ JERRY R. SELINGER

Jerry R. Selinger

Attorney for Appellees

C. Taylor Ashworth

8080 N. Central Expressway

Suite 400

Dallas, Texas 75206

Attorney for Appellants

A-25

CERTIFICATE OF SERVICE

The undersigned does hereby certify that a true and

correct copy of the foregoing Consent was mailed, first-

class mail, postage prepaid, to C. Taylor Ashworth, 8080

N. Central Expressway, Suite 400, Dallas, Texas 75206, on

this 12th day of September, 1985.

/s/ GLORIA PARKER

Gloria Parker

A-26

APPENDIX E

28 U.S.C. § 636(c)

(c) Notwithstanding any provision of law to the con-

trary —

(1) Upon the consent of the parties, a full-time

United States magistrate or a part-time United

States magistrate who serves as a full-time judicial

officer may conduct any or all proceedings in a jury

or nonjury civil matter and order the entry of judg-

ment in the case, when specially designated to

exercise such jurisdiction by the district court or

courts he serves. Upon the consent of the parties,

pursuant to their specific written request, any other

part-time magistrate may exercise such jurisdiction,

if such magistrate meets the bar membership

requirements set forth in section 631(b)(1) and the

chief judge of the district court certifies that a full-

time magistrate is not reasonably available in

accordance with guidelines established by the judi-

cial council of the circuit. When there is more than

one judge of a district court, designation under this

paragraph shall be by the concurrence of a majority

of all the judges of such district court, and when

there is no such concurrence, then by the chief judge.

(2) If a magistrate is designated to exercise civil

jurisdiction under paragraph (1) of this subsection,

the clerk of court shall, at the time the action is filed,

notify the parties of their right to consent to the

exercise of such jurisdiction. The decision of the

parties shall be communicated to the clerk of the

court. Thereafter, neither the district judge nor the

magistrate shall attempt to persuade or induce any

A-27

party to consent to reference of any civil matter to a

magistrate. Rules of court for the reference of civil

matters to magistrates shall include procedures to

protect the voluntariness of the parties’ consent.

(3) Upon entry of judgment in any case referred

under paragraph (1) of this subsection, an aggrieved

party may appeal directly to the appropriate United

States court of appeals from the judgment of the

magistrate in the same manner as an appeal from

any other judgment of a district court. In this cir-

cumstance, the consent of the parties allows a mag-

istrate designated to exercise civil jurisdiction under

paragraph (1) of this subsection to direct the entry of

a judgment of the district court in accordance with

the Federal Rules of Civil Procedure. Nothing in this

paragraph shall be construed as a limitation of any

party’s right to seek review by the Supreme Court of

the United States.

(4) Notwithstanding the provisions of paragraph

(3) of this subsection, at the time of reference to a

magistrate, the parties may further consent to

appeal on the record to a judge of the district court in

the same manner as on an appeal from a judgment

of the district court to a court of appeals. Wherever

possible the local rules of the district court and the

rules promulgated by the conference shall endeavor

to make such appeal inexpensive. The district court

may affirm, reverse, modify, or remand the magis-

trate’s judgment.

A-28

(5) Cases in the district courts under paragraph (4) of

this subsection may be reviewed by the appropriate United

States court of appeals upon petition for leave to

appeal by a party stating specific objections to the judg-

ment. Nothing in this parapraph shall be construed to be a

limitation on any party’s right to seek review by the

Supreme Court of the United States.

(6) The court may, for good cause shown on its own

motion, or under extraordinary circumstances shown by

any party, vacate a reference of a civil matter to a magis-

trate under this subsection.

(7) The magistrate shall determine, taking into account

the complexity of the particular matter referred to the

magistrate, whether the record in the proceeding shall be

taken, pursuant to section 753 of this title, by electronic

sound recording means, by a court reporter appointed or

employed by the court to take a verbatim record by short-

hand or mechanical means, or by an employee of the court

designated by the court to take such a verbatim record.

Notwithstanding the magistrate’s determination, (A) the

proceeding shall be taken down by a court reporter if any

party so requests, (B) the proceeding shall be recorded by a

means other than a court reporter if all parties so agree,

ana (C) no record of the proceedings shall be made if all

parties so agree. Reporters referred to in this paragraph

may be transferred for temporary service in any district

court of the judicial circuit for reporting proceedings under

this subsection, or for other reporting duties in such court.

|

A-29

28 U.S.C. § 158

(a) The district courts of the United States shall have

jurisdiction to hear appeals from final judgments, orders,

and decrees, and, with leave of the court, from interlocu-

tory orders and decrees, of bankruptcy judges entered in

cases and proceedings referred to the bankruptcy judges

under section 157 of this title. An appeal under this sub-

section shall be taken only to the district court for the

judicial district in which the bankruptcy judge is serving.

(b) (1) The judicial council of a circuit may establish

a bankruptcy appellate panel, comprised of bank-

ruptcy judges from districts within the circuit, to hear

and determine, upon the consent of all the parties,

appeals under subsection (a) of this section.

(2) No appeal may be referred to a panel under

this subsection unless the district judges for the dis-

trict, by majority vote, authorize such referral of

appeals originating within the district.

(3) A panel established under this section shall

consist of three bankruptcy judges, provided a bank-

ruptcy judge may nci hear an appeal originating

within a district for which the judge is appointed or

designated under section 152 of this title.

(c) An appeal under subsections (a) and (b) of this sec-

tion shall be taken in the same manner as appeals in civil

proceedings generally are taken to the courts of appeals

from the district courts and in the time provided by Rule

8002 of the Bankruptcy Rules.

(d) The courts of appeals shall have jurisdiction of

appeals from all final decisions, judgments, orders and

decrees entered under subsections (a) and (b) of this

section.

A-30

28 U.S.C. § 1334 (1978)

Bankruptcy Appeals

(a) The district courts for districts for which panels have

not been ordered appointed under section 160 of this title

shall have jurisdiction of appeals from all final judgments,

orders, and decrees of bankruptcy courts.

(b) The district courts for such districts shall have juris-

diction of appeals from interlocutory orders and decrees of

bankruptcy courts, but only by leave of the district court to

which the appeal is taken.

(c) A district court may not refer an appeal under that

section to a magistrate or to a special master.

A-31

28 U.S.C. § 1334 (1984)

Bankruptcy cases and proceedings:

(a) Except as provided in subsection (b) of this sec-

tion, the district courts shall have original and exclusive

jurisdiction of all cases under title 11.

(b) Notwithstanding any Act of Congress that

confers exclusive jurisdiction on a court or courts other

than the district courts, the district courts shall have orig-

inal but not exclusive jurisdiction of all civil proceedings

arising under title 11, or arising in or related to cases

under title 11.

(c) (1) Nothing in this section prevents a district

court in the interest of justice, or in the interest of

comity with State courts or respect for State law,

from abstaining from hearing a particular proceed-

ing arising under title 11 or arising in or related to a

case under title 11.

(2) Upon timely motion of a party in a proceeding

based upon a State law claim or State law cause of

action, related to a case under title 11 but not arising

under title 11 or arising in a case under title 11, with

respect to which an action could not have been com-

menced in a court of the United States absent juris-

diction under this section, the district court shall

abstain from hearing such proceeding if an action is

commenced, and can be timely adjudicated, in a

State forum of appropriate jurisdiction. Any decision

to abstain made under this subsection is not review-

able by appeal or otherwise. This subsection shall

not be construed to limit the applicability of the stay

provided for by section 362 of title 11, United States

Code, as such section applied to an action affecting

the property of the estate in bankruptcy.